The classic theory of fiscal federalism suggests that different people should have different governments. Yet, separate local governments with homogeneous constituents often end up doing poorly. This paper explains why and answers three questions: when regions are heterogeneous, what determines...

This paper studies fiscal federalism when voter information varies across regions. We develop a model of political agency with heterogeneously informed voters. Rent-seeking politicians provide public goods to win the votes of the informed. As a result, rent extraction is lower in regions with...

This paper studies fiscal federalism when voter information varies across regions. We develop a model of political agency with heterogeneously informed voters. Rent seeking politicians provide public goods to win the votes of the informed. As a result, rent extraction is lower in regions with...